Related provisions for BIPRU 3.4.65

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MCOB 5.6.2RRP
An illustration provided to a customer must:(1) contain the material set out in MCOB 5 Annex 1 in the order and using the numbered section headings, sub-headings and prescribed text in MCOB 5 Annex 1, except where provided for in MCOB 5.6;(2) follow the layout of the template in MCOB 5 Annex 1 with:(a) prominent use of the Key facts3 logo followed by the text 'about this mortgage';33(b) each section clearly separated;(c) all the amounts to be paid in Sections 5, 6, 8 and 9 in
MCOB 5.6.6RRP
As a minimum the illustration must be personalised to reflect the following requirements of the customer:(1) the specific regulated mortgage contract in which the customer is interested;(2) the amount of the loan required;(3) the price or value of the property on which the regulated mortgage contract would be secured (estimated where necessary);(4) the term of the regulated mortgage contract (where the customer is unable to suggest a date at which he expects to repay the loan,
MCOB 5.6.9RRP
The amount referred to in MCOB 5.6.6 R(2) is:(1) in cases where on the basis of the information obtained from the customer before providing the illustration it is clear that the customer would not be eligible to borrow the amount he requested, an estimate of the amount that the customer could borrow based on the information obtained from the customer; or(2) where the regulated mortgage contract is a revolving credit agreement such as a secured overdraft or mortgage credit card:4(a)
MCOB 5.6.14GRP
(1) MCOB 5.6.13 R applies where, for example, the illustration covers a regulated mortgage contract that is:(a) divided so that a certain amount of the loan is payable on a fixed interest rate, and a certain amount on a discounted interest rate; or(b) a combination of a repayment mortgage and an interest-only mortgage and the loan is subdivided into different types of interest rate and/or different rates of interest.(2) MCOB 5.6.13 R does not apply where an illustration covers
MCOB 5.6.17RRP
(1) Unless (2) applies, under the section heading 'Which service are we providing you with?' the prescribed text in MCOB 5 Annex 1 under this heading must be included, with a 'check box' for each statement, one of which must be marked prominently to indicate the level of service provided to the customer.(2) If the level of service described in the illustration is provided by another firm, (1) may be replaced by the following:Under the section heading 'Which service are we providing
MCOB 5.6.25RRP
Under the section heading 'Description of this mortgage' the illustration must:(1) state the name of the mortgage lender providing the regulated mortgage contract to which the illustration relates (a trading name used by the mortgage lender may also be stated in accordance with MCOB 5.6.2 R(6)), and the name, if any, used to market the regulated mortgage contract;(2) (a) provide a description of the interest rate type and rate of interest that applies in accordance with the format
MCOB 5.6.31RRP
Under the section heading 'Overall cost of this mortgage' where the regulated mortgage contract has an agreed term for repayment and a regular payment plan (that is, it is not a revolving credit agreement such as a secured overdraft or mortgage credit card, or a regulated mortgage contract where all of the interest rolls up, such as an open-ended bridging loan9):9(1) the following text must be included in the illustration: 'The overall cost takes into account the payments in Sections
MCOB 5.6.32RRP
Under the section heading 'Overall cost of this mortgage' where the regulated mortgage contract has no agreed term for repayment, (and a 12 month term has been assumed), or no regular payment plan, or both (for example, a revolving credit agreement such as a secured overdraft or mortgage credit card or a regulated mortgage contract where all the interest rolls up such as an open-ended bridging loan9):9(1) the following text must be included in the illustration: 'The overall cost
MCOB 5.6.35RRP
(1) The APR and the total amount payable in MCOB 5.6.34 R must be calculated on the basis of information obtained from the customer under MCOB 5.6.6 R.(2) Where there is a charge to be included in the APR and total amount payable and the precise amount of that charge is not known at the time that the illustration is provided, MCOB 10.3 (Formula for calculating the APR) sets out a number of relevant assumptions to be used. If the method for including the charge is not addressed
MCOB 5.6.39RRP
MCOB 5.6.40 R to MCOB 5.6.57 G do not apply to loans without a term or regular payment plan where some or all of the interest rolls up, for example bridging loans9, secured overdrafts or mortgage credit cards. In these cases, MCOB 5.6.134 R to MCOB 5.6.138 G apply.9
MCOB 5.6.42RRP
Section 6 of the illustration must contain the following information: (1) the loan amount on which the illustration is based. This figure should include all fees, charges and insurance premiums that have been added to the loan in accordance with MCOB 5.6.18 R(2) and MCOB 5.6.18 R(3), and the following text must follow the loan amount:'and include[s] the [fees] [and] [insurance premiums] that are shown in [Section 8] [and] [Section 9] as being added to your mortgage.'(2) the assumed
MCOB 5.6.44GRP
If appropriate, the two statements required by MCOB 5.6.42 R(1) and MCOB 5.6.42 R(2) may be merged, for example 'These payments are based on a loan amount of £x and assume that the mortgage will start on [dd/mm/yy]'.
MCOB 5.6.53GRP

An example of how the information required by MCOB 5.6.52 R (1), MCOB 5.6.52 R (3) and MCOB 5.6.52 R (5) may be presented is as follows:

Cost of repaying the capitalYou will still owe £Z at the end of the mortgage term. You will need to make separate arrangements to repay this. When comparing the payments on this mortgage with a repayment mortgage, remember to add any money that you may need to pay into a separate savings plan to build up a lump sum to repay this amount.

Savings plan that you do not have to take out through [insert name of mortgage lender or mortgage intermediary]

Monthly payments

XYZ savings plan (see separate product disclosure document)

£C

What you will need to pay each month including the cost of a savings plan to repay the capital

36 payments at a fixed rate currently x% followed by:

£(A+C)

264 payments at a variable rate currently y%.

£(B+C)
MCOB 5.6.58RRP
MCOB 5.6.59 R to MCOB 5.6.65 R do not apply to loans without a term or regular repayment plan where some or all of the interest rolls up, for example, bridging loans9, secured overdrafts or mortgage credit cards. In these cases MCOB 5.6.140 R to MCOB 5.6.145 R apply.9
MCOB 5.6.63RRP
The following words must be prominently displayed at the end of the sub-section 'What if your income goes down?':'Make sure you can afford your mortgage if your income falls'.
MCOB 5.6.65RRP
The following text must be included at the end of Section 7 'Are you comfortable with the risks?': The Money Advice Service8 information sheet "You can afford your mortgage now, but what if...?" will help you consider the risks. You can get a free copy from http://www.moneyadviceservice.org.uk,8612or by calling 0800 138 7777.’7866
MCOB 5.6.70RRP
(1) If a higher lending charge is payable by the customer, the following text must be used to describe such a charge for the purposes of MCOB 5.6.69 R:'A higher lending charge is payable because you are borrowing [insert the ratio of the mortgage amount (from MCOB 5.6.6 R(2)) to the property's price or value (from MCOB 5.6.6 R(3))] of the property's [estimated] [price/value].'(2) If the customer has asked for any fees to be added to the loan, this must be stated alongside each
MCOB 5.6.77RRP
The following information must be included under the sub-heading 'Insurance you must take out as a condition of this mortgage but that you do not have to take out through [insert the name of the mortgage lender, or where relevant the name of the mortgage intermediary, or both]':(1) if the regulated mortgage contract requires the customer to take out an insurance policy (other than that which is a tied product which the customer is obliged to purchase through the mortgage lender,
MCOB 5.6.78GRP
Under the sub-heading 'Insurance you must take out as a condition of this mortgage but that you do not have to take out through [insert name of mortgage lender or where relevant the name of the mortgage intermediary, or both]' the illustration should not include any insurance policy that may be taken out by a mortgage lender itself to protect its own interests rather than the customer's interests, for example, because of the ratio of the loan amount to the property value.1
MCOB 5.6.84RRP
Under the heading 'What happens if you do not want this mortgage any more?', the illustration must include the following information on the regulated mortgage contract:(1) under the sub-heading 'Early repayment charges':(a) an explanation that the customer cannot repay the regulated mortgage contract early, if this is the case;(b) an explanation of whether early repayment charges are payable;(c) an explanation of when early repayment charges are payable;(d) an explanation of any
MCOB 5.6.118GRP
MCOB 2.3.7 R requires any material inducements provided by a mortgage lender, whether directly or indirectly, to a mortgage intermediary or third party (unless the payment only reflects the cost of outsourcing work relating to the processing of mortgage applications by a firm unconnected to the mortgage intermediary) to be quantified in cash terms, which will enable the cash values to be included in the illustration in accordance with MCOB 5.6.117 R.1
MCOB 5.6.119GRP
An example of a statement which would comply with MCOB 5.6.113 R and MCOB 5.6.117 R would be:'[name of mortgage lender] will pay [name of mortgage intermediary] an amount of £350 in cash and benefits if you take out this mortgage.'
MCOB 5.6.121RRP
Under the section heading 'Where can you get more information about mortgages?', the prescribed text under this heading in MCOB 5 Annex 1 must be included.
MCOB 5.6.122RRP
This section must follow the section 'Where can you get further information about mortgages?' and must include the name, address and contact point of the firm providing the illustration.
MCOB 5.6.123GRP
An example of wording which would comply with MCOB 5.6.122 R would be:'If you wish to discuss this mortgage illustration please contact [name of firm] at [address] or on [telephone number]'.
MCOB 5.6.124RRP
4(1) 4The following words must be prominently displayed in the illustration, after the contact details: 'Your home may be repossessed if you do not keep up repayments on your mortgage'.(2) If the loan may be secured on property which is not the customer's home the statement in (1) may be amended but only to the extent necessary in order to reflect that fact.4
MCOB 5.6.133RRP
MCOB 5.6.134 R to MCOB 5.6.138 G apply only to loans without a term or regular payment plan where some or all of the interest rolls up, for example bridging loans9, secured overdrafts or mortgage credit cards.9
MCOB 5.6.136RRP
Section 6 of the illustration must contain the following information:(1) the loan amount on which the illustration is based. Where fees are being added to the loan then this figure should include all fees, charges and insurance premiums that have been added to the loan in accordance with MCOB 5.6.18 R(2) and MCOB 5.6.18 R(3), and the following text must follow the loan amount:'and include[s] the fees [and insurance premiums] that are shown in Section 8 [and Section 9] as being
MCOB 5.6.137GRP
An example of the statement required by MCOB 5.6.136 R(3) would be:'You [do not need to/cannot] make regular payments on this mortgage.'
MCOB 5.6.138GRP
An example of MCOB 5.6.136 R(4) would be:'You need to make minimum payments as follows:3% of the amount outstanding £x.xxThis payment will not be sufficient to repay the mortgage over the term specified.'
MCOB 5.6.139RRP
MCOB 5.6.140 R to MCOB 5.6.145 R apply only to loans without a term or regular payment plan where some or all of the interest rolls up, for example bridging loans9, secured overdrafts or mortgage credit cards.9
MCOB 5.6.143RRP
The following words must be prominently displayed at the end of the sub-section 'What if your income goes down?':'Make sure you can afford your mortgage if your income falls'.
MCOB 5.6.145RRP
The following text must be included at the end of Section 7 'Are you comfortable with the risks?': The Money Advice Service8 information sheet "You can afford your mortgage now, but what if...?" will help you consider the risks. You can get a free copy from http://www.moneyadviceservice.org.uk,8 or by calling 0800 138 7777.'76128686
MIPRU 4.2F.3GRP
This section is broadly organised according to the type of exposure class.(1) Exposures secured by mortgages on residential property (MIPRU 4.2F.4 R to MIPRU 4.2F.36 R)(2) Exposures secured by mortgages on commercial property (MIPRU 4.2F.37 R)(3) Exposures to other loans (MIPRU 4.2F.38 R)(4) Exposures to funds (MIPRU 4.2F.39 R to MIPRU 4.2F.49 R)(5) Exposures to past due items (MIPRU 4.2F.50 R to MIPRU 4.2F.56 G)
MIPRU 4.2F.4RRP
Without prejudice to MIPRU 4.2F.36 R, an exposure or any part of an exposure must be assigned a risk weight of 35% where: (1) the exposure is fully and completely secured, to the satisfaction of the firm, by mortgages on residential property; and(2) the residential property is, or will be, occupied or let by the owner or the beneficial owner in the case of personal investment companies.
MIPRU 4.2F.5RRP
Without prejudice to MIPRU 4.2F.36 R, an exposure, or any part of an exposure, must be assigned a risk weight of 75% where: (1) the exposure arises from a mortgage on residential property up to a limit of 100% of the value of the property which is not fully and completely secured, to the satisfaction of the firm, by that mortgage; and(2) the residential property is, or will be, occupied or let by the owner or the beneficial owner in the case of personal investment companies.
MIPRU 4.2F.6RRP
An exposure or any part of an exposure must be assigned a risk weight of 100% where the exposure arises from a mortgage on residential property that exceeds the value of the available collateral, as assessed in accordance with MIPRU 4.2F.29 R.
MIPRU 4.2F.7RRP
(1) A firm must not treat a lifetime mortgage as an exposure fully and completely secured on residential property for the purposes of MIPRU 4.2F.4 R unless the amount of the exposure is calculated according to the following formula:where:(a) P is the current outstanding balance on the lifetime mortgage;(b) i is the interest rate charged on the lifetime mortgage, which for the purposes of this calculation must not be lower than the discount rate referred to in (c);(c) d is the
MIPRU 4.2F.9RRP
Without prejudice to MIPRU 4.2F.36 R, an exposure, or any part of an exposure, to a tenant under a property leasing transaction must be assigned a risk weight of 35% where: (1) the transaction concerns residential property; (2) under the transaction, the firm is the lessor and the tenant has an option to purchase; and(3) the firm is satisfied that the exposure is fully and completely secured by its ownership of the property.
MIPRU 4.2F.10GRP
An Ijara mortgage is an example of an exposure described in MIPRU 4.2F.9 R.
MIPRU 4.2F.11RRP
(1) In exercising its judgment under MIPRU 4.2F.4 R to MIPRU 4.2F.9 R, a firm may be satisfied only if the conditions in (2) to (6) are met.(2) (a) The value of the property does not materially depend upon the credit quality of the borrower. (b) The condition in (a) does not preclude situations where purely macroeconomic factors affect both the value of the property and the performance of the borrower.(3) The minimum requirements about: (a) legal certainty in MIPRU 4.2F.12 R;
MIPRU 4.2F.12RRP
The requirements about legal certainty referred to in MIPRU 4.2F.11R (3)(a) are as follows: (1) the mortgage or charge must be enforceable in all relevant jurisdictions which are relevant at the time of conclusion of the credit agreement, and the mortgage or charge must have been properly filed on a timely basis;(2) the arrangements must reflect a perfected lien (i.e. all legal requirements for establishing the pledge must have been fulfilled); and(3) the protection agreement
MIPRU 4.2F.13GRP
The term ‘protection agreement’ in MIPRU 4.2F.12R (3) refers to the contract or deed by which the mortgage or charge is established.
MIPRU 4.2F.14RRP
(1) The requirements about monitoring of property values referred to in MIPRU 4.2F.11R (3)(b) are as follows: (a) the value of the property must be monitored on a frequent basis and, at a minimum, once every three years;(b) more frequent monitoring must be carried out where the market is subject to significant changes in conditions; (c) statistical methods may be used to monitor the value of the property and to identify property that needs revaluation; (d) the property valuation
MIPRU 4.2F.15GRP
A property will need to be revalued over time to ensure that the original purchase price does not overstate the degree of security provided by the property. Ijara providers should undertake revaluations in the same way as providers of conventional mortgages.
MIPRU 4.2F.20RRP
The requirements in MIPRU 4.2F.11R (3)(c) are that the types of residential real estate accepted by the firm and its lending policies in this regard must be clearly documented.
MIPRU 4.2F.33RRP
If a firm has an exposure arising through a second-charge mortgage secured on the same property as a first-charge loan from a different firm, the exposure, taking into account the first-charge mortgage, must be split into the following components and risk weighted as follows, after taking into account the seniority of the first-charge loan:(1) the amount of the exposure or any part of the exposure, up to a limit of 80% of the value of the residential property, must be assigned
MIPRU 4.2F.34GRP
  1. (1)

    The application of MIPRU 4.2F.33 R may be illustrated by an example. Where a first-charge mortgage exposure of £50,000 from another lender is secured on residential property in the United Kingdom that satisfies the criteria in MIPRU 4.2F.4 R to MIPRU 4.2F.29 R and the value of that property is £100,000, then a firm with a second-charge mortgage of £60,000 on the same property may treat £30,000 of that exposure as fully and completely secured and risk weight it at 35%, treat a further £20,000 as unsecured and risk weight it at 75%, and risk weight the remaining £10,000 at 100%. A diagrammatic illustration of this example is in (2).

  2. (2)

    A diagrammatic illustration of the example in (1)

    Property value

    Exposure and risk weightings

    Example

    £10,000 of second-charge - risk weighted at 100%

    • Remaining second-charge mortgage, i.e. £10,000

    £100,000

    £20,000 of second-charge - risk weighted at 75%

    • Second-charge mortgage up to maximum of 100% of property value, i.e. £20,000

    £30,000 of second-charge - risk weighted at 35%

    • Second-charge mortgage up to maximum of 80% of property value, i.e. £30,000

    First-charge mortgage (£50,000)

    • Other lender has first-charge over property with outstanding loan balance of £50,000
MIPRU 4.2F.37RRP
Exposures, or any part of an exposure, secured by mortgages on offices or other commercial premises must be assigned a risk weight of 100% where the exposure:(1) cannot properly be considered to fall within any other standardised credit risk exposure class specified in MIPRU 4.2A.6A R (Exposure classes); or (2) does not qualify for a lower risk weight under this section.
MIPRU 4.2F.51RRP
Where value adjustments are taken against the secured part of an exposure secured by a mortgage on residential property and that is past due, the secured part net of value adjustments must be assigned a risk weight of: (1) 100% if value adjustments are less than 20% of the secured part of the exposure gross of value adjustments; or(2) 50% if value adjustments are no less than 20% of the secured part of the exposure gross of value adjustments.
MIPRU 4.2F.52GRP
A firm may treat the secured part of an exposure covered by a mortgage indemnity product that meets the relevant eligibility criteria for credit risk mitigation as secured for the purposes of MIPRU 4.2F.51 R.
MIPRU 4.2F.56GRP

The application of value adjustments to either the secured or the unsecured component of an exposure secured on residential property may be illustrated on the basis of a £110,000 loan on a property valued at £100,000, where £80,000 of the loan is secured, £30,000 of the exposure is unsecured and a value adjustment of £20,000 is taken.

  1. (1)

    Value adjustment applied to unsecured component:

    1. (a)

      Value adjustment of £20,000 taken on £30,000 unsecured exposure.

    2. (b)

      Value adjustment exceeds 20%, so the firm should risk weight the remaining £10,000 unsecured exposure at 100% (as per MIPRU 4.2F.55 R).

    3. (c)

      The risk weight to be applied to the secured exposure of £80,000 is 100% (as per MIPRU 4.2F.51 R).

  2. (2)

    Value adjustment applied to secured component:

    1. (a)

      Value adjustment of £20,000 taken on £80,000 secured exposure.

    2. (b)

      Value adjustment exceeds 20%, so the firm should risk weight the remaining £60,000 secured exposure at 50% (as per MIPRU 4.2F.51 R).

    3. (c)

      The risk weight to be applied to the unsecured exposure of £30,000 is 150% (as per MIPRU 4.2F.55 R).

  3. (3)

    A diagrammatic illustration of how MIPRU 4.2F.56G (1) and MIPRU 4.2F.56G (2) operate is as follows:

    Value adjustment applied to unsecured component (MIPRU 4.2F.51 R)

    Risk weightings

    Exposure

    Risk weightings

    Value adjustment to secured component (MIPRU 4.2F.55 R)

    £20,000

    Unsecured component of £30,000

    £30,000 risk weighted at 150%

    £10,000 risk weighted at 100%

    £80,000 risk weighted at 100%

    Secured component of £80,000

    £20,000

    £60,000 risk weighted at 50%
DISP App 1.2.1GRP
If there has been a failure to give compliant and proper advice, or some other breach of the duty of care, the basic objective of redress is to put the complainant, so far as is possible, in the position he would have been in if the inappropriate advice had not been given, or the other breach had not occurred. In many cases, although it must be a matter for inquiry and assessment in each individual case, this position is likely to have resulted in the complainant taking a repayment
DISP App 1.2.2GRP
Unless the contrary is demonstrated, it should be assumed that the complainant could have afforded the mortgage on a repayment basis.1212
DISP App 1.2.3GRP
The measure of any financial loss suffered by the complainant will be arrived at by:12(1) comparing the complainant's current capital position with the position he would have been in had the loan been a standard repayment mortgage as at the date the firm decides to regard the complaint as justified; and(2) comparing the cost of the complainant's actual monthly outgoings and those he would have made had his loan been on a standard repayment basis as at the date the firm decides
DISP App 1.2.4GRP
12In some cases other factors may be included in the overall calculation, for example, if mortgage arrangement fees were waived by agreement on the occasion of the endowment policy being taken out.
DISP App 1.2.5GRP
12If, on comparing the complainant's current endowment position with the repayment alternative, the surrender value of the endowment policy exceeds the amount of the capital which the complainant would have repaid through the repayment method, then, at the point of the assessment, the complainant has suffered no capital loss (but the complainant may suffer some compensatable consequential loss associated with changing the mortgage arrangements to the repayment basis, see DISP
DISP App 1.2.6GRP
12If the complainant's endowment mortgage outgoings exceed the equivalent cost for the repayment method, the complainant should be compensated for the higher payments in addition to any loss on the surrender value and capital repaid comparison. This means, for example, that if the endowment arrangement has been more expensive, this may result in compensatable loss even though the capital repayment against surrender comparison may be favourable to the endowment.
DISP App 1.2.8GRP
12It is unlikely to be reasonable to bring "savings" into account in circumstances where, at the time of the sale of the policy:(1) the complainant was advised or informed orally or in writing that he would have lower outgoings than would be the case under a repayment mortgage, whether or not the difference was quantified; and(2) the complainant has dissipated those "savings" on the strength of this advice or information.
DISP App 1.2.10GRP
12Where it is otherwise reasonable for "savings" to be brought into account, determining whether or not a complainant is of sufficient means and, if so, to what extent the "savings" are to be brought into account, will have to be based on the facts of each individual case. It will be appropriate to require the complainant to provide adequate information to assist the firm in this task. Matters to be taken into account in this assessment may include:(1) the length of the remaining
DISP App 1.2.16GRP
12If a complainant becomes aware that he has taken out the endowment policy on the basis of unsuitable advice and inadequate information, he should if necessary, after taking appropriate advice, take reasonable steps to limit his loss, and may in any subsequent claim be unable to recover for losses which are avoidable. The complainant may have to show that he has not delayed unreasonably since becoming aware of his loss. The reasonable costs and expenses the complainant may have
DISP App 1.2.17GRP
12The standard approach to redress can be illustrated by the following examples, which show how redress would be calculated in certain hypothetical but typical scenarios. (Because the examples are illustrative, round numbers have been used for 'established facts' in each example. The payments should be taken as being made monthly: firms should not approximate by assuming that payments are made annually. If the complainant has benefited from MIRAS, the calculations should allow
DISP App 1.2.18GRP

12Table of examples of typical redress calculations

Example 1

Capital shortfall and higher endowment outgoings

Example 2

Capital shortfall partially offset by lower endowment mortgage outgoings

Example 3

Capital shortfall more than offset by lower endowment mortgage outgoings

Example 4

Capital surplus more than offset by higher endowment mortgage outgoings

Example 5

Capital surplus partially offset by higher endowment mortgage outgoings

Example 6

Capital surplus and lower endowment mortgage outgoings

Example 7

Low start endowment mortgage
DISP App 1.2.19GRP

12Example 1

Example 1

Capital shortfall and higher endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 5 years

Endowment premium per month: £75

Established facts

Endowment surrender value:

£3,200

Capital repaid under equivalent repayment mortgage:

£4,200

Surrender value less capital repaid:

(£1,000)

Cost of converting from endowment mortgage to repayment mortgage:

(£200)

Total outgoings to date

Equivalent repayment mortgage (capital + interest + DTA life cover):

£21,950

Endowment mortgage (endowment premium + interest):

£22,250

Difference in outgoings (repayment - endowment):

(£300)

Basis of compensation

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid and also because of the higher total outgoings to date of the endowment mortgage relative to the repayment mortgage. The two losses and the conversion cost are therefore added together in order to calculate the redress.

Redress

Loss from surrender value less capital repaid:

(£1,000)

Loss from total extra outgoings under endowment mortgage:

(£300)

Cost of converting to repayment mortgage:

(£200)

Total loss:

(£1,500)

Therefore total redress is:

£1,500
DISP App 1.2.20GRP

12Example 2

Example 2

Capital shortfall partially offset by lower endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 5 years

Endowment premium per month: £60

Established facts

Endowment surrender value:

£2,500

Capital repaid under equivalent repayment mortgage

£4,200

Surrender value less capital repaid under equivalent repayment mortgage:

(£1,700)

Cost of converting from endowment mortgage to repayment mortgage

(£300)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£21,950

Endowment mortgage (endowment premium + interest):

£21,350

Difference in outgoings (repayment - endowment):

£600

Basis of Compensation

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained form the lower outgoings of the endowment mortgage to date. In calculating the redress the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain.

Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings

Loss from surrender value less capital repaid:

(£1,700)

Gain from total lower outgoings under endowment mortgage:

£600

Cost of converting to repayment mortgage:

(£300)

Net loss:

(£1,400)

Therefore total redress is:

£1,400

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from surrender value less capital repaid:

(£1,700)

Gain from total lower outgoings under endowment mortgage:

Ignored*

Cost of converting to repayment mortgage:

(£300)

Net loss taken into account:

(£2,000)

Therefore total redress is:

£2,000

* In this example, and also in Examples 3, 7, 8 and 9, the complainant's circumstances are assumed to be such as to make it unreasonable to take account of any of the gain from lower outgoings.
DISP App 1.2.21GRP

12Example 3

Example 3

Capital shortfall more than offset by lower endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 8 years

Endowment premium per month: £65

Established facts

Endowment surrender value:

£7,300

Capital repaid under equivalent repayment mortgage:

£7,600

Surrender value less capital repaid:

(£300)

Cost of converting from endowment mortgage to repayment mortgage:

(£200)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£34,510

Endowment mortgage (endowment premium + interest):

£33,990

Difference in outgoings (repayment - endowment):

£520

Basis of Compensation

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained from the lower total outgoings of the endowment mortgage. In calculating redress the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain.

Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings

Loss from surrender value less capital repaid:

(£300)

Gain from total lower outgoings under endowment mortgage:

£520

Cost of converting to repayment mortgage:

(£200)

Net gain:

£20

Therefore, there has been no loss and no redress is payable.

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from surrender value less capital repaid:

(£300)

Gain from total lower outgoings under endowment mortgage:

Ignored

Cost of converting to repayment mortgage:

(£200)

Net loss taken into account:

(£500)

Therefore total redress is:

£500
DISP App 1.2.22GRP

12Example 4

Example 4

Capital surplus more than offset by higher endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 8 years

Endowment premium per month: £75

Established facts

Endowment surrender value:

£7,800

Capital repaid under equivalent repayment mortgage:

£7,600

Surrender value less capital repaid:

£200

Cost of converting from endowment mortgage to repayment mortgage:

(£250)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£34,510

Endowment mortgage (endowment premium + interest):

£34,950

Difference in outgoings (repayment - endowment):

(£440)

Basis of Compensation

In this example, the complainant has suffered loss because of the higher total outgoings to date of the endowment mortgage but has gained because the surrender value of the endowment is greater than the capital repaid. Since the sum of the loss and the conversion cost is greater than the gain, the redress is calculated as the difference between the two.

Redress

Gain from surrender value less capital repaid:

£200

Loss from total extra outgoings under endowment mortgage:

(£440)

Cost of converting to repayment mortgage:

(£250)

Net loss:

(£490)

Therefore total redress is:

£490
DISP App 1.2.23GRP

12Example 5

Example 5

Capital surplus partially offset by higher endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 10 years

Endowment premium per month: £75

Established facts

Endowment surrender value:

£11,800

Capital repaid under equivalent repayment mortgage

£9,700

Surrender value less capital repaid:

£2,100

Cost of converting from endowment mortgage to repayment mortgage:

(£300)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£46,800

Endowment mortgage (endowment premium + interest):

£47,500

Difference in outgoings (repayment - endowment):

(£700)

Basis of Compensation

In this example, the complainant has suffered loss because of the higher total outgoings to date of the endowment mortgage relative to the repayment mortgage. However the sum of this and the conversion cost is less than the complainant's gain from the difference between the surrender value of the endowment and the capital repaid. Thus no redress is payable.

Redress

Gain from surrender value less capital repaid:

£2,100

Loss from total extra outgoings under endowment mortgage:

(£700)

Cost of converting to repayment mortgage:

(£300)

Net gain:

£1,100

Therefore, there has been no loss and no redress is payable.
DISP App 1.2.24GRP

12Example 6

Example 6

Capital surplus and lower endowment mortgage outgoings

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 10 years

Endowment premium per month: £65

Established facts

Endowment surrender value:

£10,100

Capital repaid under equivalent repayment mortgage

£9,700

Surrender value less capital repaid:

£400

Cost of converting from endowment mortgage to repayment mortgage:

(£200)

Total outgoings to date:

Repayment mortgage (capital + interest + DTA life cover):

£46,800

Endowment mortgage (endowment premium + interest):

£46,300

Difference in outgoings (repayment - endowment):

£500

Basis of Compensation

In this example, the complainant has gained both because the surrender value of the endowment is greater than the capital repaid and because of the lower total outgoings of the endowment mortgage. These gains are larger than the cost of converting to a repayment mortgage. Thus no further action is necessary.

Redress

As there has been no loss, no redress is payable.
DISP App 1.2.25GRP

12Example 7

Example 7

Low start endowment mortgage

Background

Capital sum of £50,000

25 year endowment policy

Duration to date: 10 years

Endowment premium per month: starting at £35 in first year, increasing by 20% simple on each policy anniversary, reaching £70 after five years and then remaining at that level.

Established facts:

Endowment surrender value:

£8,200

Capital repaid under equivalent repayment mortgage:

£9,700

Surrender value less capital repaid:

(£1,500)

Cost of converting from endowment mortgage to repayment mortgage:

(£250)

Total outgoings to date

Repayment mortgage (capital + interest + DTA life cover):

£46,800

Endowment mortgage (endowment premium + interest):

£45,640

Difference in outgoings (repayment minus endowment):

£1,160

Of this difference in outgoings, £800 arose in the five year period when the complainant was paying a low endowment premium.

Basis of compensation

In this example, the complainant has suffered loss because the surrender value of the endowment is less than the capital repaid but has gained from the lower total outgoings of the endowment mortgage. As in Example 3, in calculating redress the whole of the gain should be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to do so. However, unlike Example 3, in a low start endowment mortgage the complainant may have chosen to pay a lower than usual premium in the early years (this would need to be established on the facts of the case). Where it has been established that the complainant chose to make lower payments, even if it is unreasonable to take account of the whole of the gain from total outgoings, the gain from paying a lower premium during the low start period is normally taken into account. In such cases the redress is calculated as the capital loss plus the conversion cost minus the total amount by which repayment mortgage outgoings would have exceeded the actual low start endowment mortgage outgoings during the five year low start period.

Redress if it is not unreasonable to take account of the whole of the gain from lower outgoings

Loss from surrender value less capital repaid:

(£1,500)

Gain from total lower outgoings under endowment mortgage:

£1,160

Cost of converting to repayment mortgage:

(£250)

Net loss:

(£590)

Therefore total redress is:

£590

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from surrender value less capital repaid:

(£1,500)

Gain from total lower outgoings during low start period of endowment mortgage:

£800

Cost of converting to repayment mortgage:

(£250)

Net loss taken into account:

(£950)

Therefore total redress is:

£950
DISP App 1.2.26GRP
12In fixing a repayment comparator, it would be appropriate to have regard to the repayment quotation actually provided at the time of sale. If more than one repayment quotation was obtained, the comparison should be with the quotation which approximates most closely to the terms of the endowment mortgage actually taken. If a repayment quotation was not provided, or is not now available, it should be assumed that the interest rate for the repayment comparison is the same as that
DISP App 1.2.27GRP
12Unless after due inquiry there is clear evidence that the complainant with a mortgage endowment had no foreseeable need for life cover at the time the endowment arrangements were concluded, in the overall comparison between a repayment mortgage and an endowment mortgage the monthly outgoings under the repayment will include the premium for the decreasing term assurance that would have been required. This adjustment for the cost of life cover is only to be made if the firm is
BIPRU 3.4.56RRP
Without prejudice to BIPRU 3.4.85 R, an exposure or any part of an exposure fully and completely secured, to the satisfaction of the firm, by mortgages on residential property which is or shall be occupied or let by the owner or the beneficial owner in the case of personal investment companies must be assigned a risk weight of 35%.[Note: BCD Annex VI Part 1 point 45]
BIPRU 3.4.56ARRP
(1) 4A firm must not treat a lifetime mortgage as an exposure fully and completely secured on residential property for the purposes of BIPRU 3.4.56 R unless the amount of the exposure is calculated according to the following formula:exposure amount =where:(a) P is the current outstanding balance on the lifetime mortgage;(b) i is the interest rate charged on the lifetime mortgage, which for the purposes of this calculation must not be lower than the discount rate referred to in
BIPRU 3.4.58RRP
Without prejudice to BIPRU 3.4.85 R, an exposure or any part of an exposure to a tenant under a property leasing transaction concerning residential property under which the firm is the lessor and the tenant has an option to purchase, must be assigned a risk weight of 35% provided that the firm is satisfied that the exposure of the firm is fully and completely secured by its ownership of the property.[Note: BCD Annex VI Part 1 point 47]
BIPRU 3.4.59GRP
An Ijara mortgage is an example of an exposure described in BIPRU 3.4.58 R.
BIPRU 3.4.61RRP
BIPRU 3.4.60 R (3) does not apply to exposures fully and completely secured by mortgages on residential property which is situated within the United Kingdom.[Note: BCD Annex VI Part 1 point 49]
BIPRU 3.4.64RRP
The requirements about legal certainty referred to in BIPRU 3.4.60 R (4)(a) are as follows:(1) the mortgage or charge 3must be enforceable in all relevant jurisdictions which are relevant at the time of conclusion of the credit agreement, and the mortgage or charge 3must be properly filed on a timely basis;33(2) the arrangements must reflect a perfected lien (i.e. all legal requirements for establishing the pledge shall have been fulfilled); and(3) the protection agreement and
BIPRU 3.4.67GRP
A property will need to be revalued over time to ensure that the original purchase price does not overstate the degree of security provided by the property. Ijara providers should undertake revaluations in the same way as providers of conventional mortgages.
BIPRU 3.4.72RRP
The requirements about documentation referred to in BIPRU 3.4.60 R (4)(c) are that the types of residential real estate accepted by the firm and its lending policies in this regard must be clearly documented.[Note: BCD Annex VIII Part 2 point 8(c)]
BIPRU 3.4.77RRP
The property must be valued by an independent valuer at or less than the market value. In those EEA States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions the property may instead be valued by an independent valuer at or less than the mortgage lending value.[Note: BCD Annex VIII Part 3 point 62]
BIPRU 3.4.79RRP
Mortgage lending value means the value of the property as determined by a prudent assessment of the future marketability of the property taking into account long-term sustainable aspects of the property, the normal and local market conditions, the current use and alternative appropriate uses of the property. Speculative elements must not be taken into account in the assessment of the mortgage lending value. The mortgage lending value must be documented in a transparent and clear
BIPRU 3.4.80RRP
The value of the collateral must be the market value or mortgage lending value reduced as appropriate to reflect the results of the monitoring required under 2BIPRU 3.4.60 R (4)(b)2 and BIPRU 3.4.66 R and to take account of any prior claims on the property.[Note: BCD Annex VIII Part 3 point 65]
BIPRU 3.4.82GRP
(1) The application of BIPRU 3.4.81 R may be illustrated by an example. If a firm has a mortgage exposure of £100,000 secured on residential property in the United Kingdom that satisfies the criteria listed in BIPRU 3.4.56 R to BIPRU 3.4.80 R and the value of that property is £100,000, then £80,000 of that exposure may be treated as fully and completely secured and risk weighted at 35%. The remaining £20,000 may be risk weighted at 75% provided the exposure meets the criteria
BIPRU 3.4.91RRP
If a CRD implementation measure in another EEA State implements the discretion in point 51 of Part 1 of Annex VI of the Banking Consolidation Directive, a firm may apply the same treatment as that CRD implementation measure to exposures falling within the scope of that CRD implementation measure which are fully and completely secured by mortgages on offices or other commercial premises situated in that EEA State.[Note: BCD Annex VI Part 1 points 51 and 57]
BIPRU 3.4.94RRP
(1) If a CRD implementation measure in another EEA State implements the discretion in point 58 of Part 1 of Annex VI of the Banking Consolidation Directive to dispense with the condition in point 54(b) for exposures fully and completely secured by mortgages on commercial property situated in that EEA State, a firm may apply the same treatment as that CRD implementation measure to exposures fully and completely secured by mortgages on commercial property situated in that EEA State
BIPRU 3.4.99RRP
Exposures indicated in BIPRU 3.4.56 R to BIPRU 3.4.63 R (Exposures secured by mortgages on residential property) must be assigned a risk weight of 100% net of value adjustments if they are past due for more than 90 days. If value adjustments are no less than 20% of the exposure gross of value adjustments, the risk weight to be assigned to the remainder of the exposure is 50%.[Note: BCD Annex VI Part 1 point 64]
BIPRU 3.4.101RRP
Exposures indicated in BIPRU 3.4.89 R to BIPRU 3.4.94 R (Exposures secured by mortgages on commercial real estate) must be assigned a risk weight of 100% if they are past due for more than 90 days.[Note: BCD Annex VI Part 1 point 65]
PERG 4.6.2GRP
In the FCA's view, the circumstances in which a person is giving advice on the borrower varying the terms of a regulated mortgage contract so as to vary his obligations under the contract include (but are not limited to) where the advice is about:(1) the borrower obtaining a further advance secured on the same land as the original loan; or(2) a rate switch or a product switch (that is, where the borrower does not change lender but changes the terms for repayment from, say, a variable
PERG 4.6.6GRP
Advice relates to a particular contract if it recommends that a person should take out a mortgage with ABC Building Society without (expressly or by implication) specifying any particular ABC Building Society mortgage because it steers the customer towards specific identifiable mortgages and away from all others. The advice is essentially saying that there is a feature of each individual ABC Building Society mortgage that makes it better than a mortgage from any other lender.
PERG 4.6.7GRP

Typical recommendations and whether they will be regulated as advice under article 53A of the Regulated Activities Order

This table belongs to PERG 4.6.5 G and PERG 4.6.6 G.

Recommendation

Regulated or not?

I recommend you take out the ABC Building Society 2 year fixed rate mortgage at 5%.

Yes. This is advice which steers the borrower in the direction of a particular mortgage which the borrower could enter into.

I recommend you do not take out the ABC Building Society 2 year fixed rate mortgage at 5%.

Yes. This is advice which steers the borrower away from a particular mortgage which the borrower could have entered into.

I recommend that you take out either the ABC Building Society 2 year fixed rate mortgage at 5% or the XYZ Bank standard variable rate mortgage.

Yes. This is advice which steers the borrower in the direction of more than one particular mortgage which the borrower could enter into.

I recommend you take out (or do not take out) an ABC Building Society fixed rate mortgage.

Yes. See PERG 4.6.6 G.2

2

I suggest you take out (or do not take out) a mortgage with ABC Building Society.

Yes. See PERG 4.6.6 G.2

2

I suggest you change (or do not change) your current mortgage from a variable rate to a fixed rate.

No in respect of the advice about rate type, as this does not steer the borrower in the direction of a particular mortgage which the borrower could enter into.

Yes in respect of the advice about varying the terms of the particular mortgage that the borrower had already entered into.

I suggest you take out (or do not take out) a variable rate mortgage.

No. This is not advice which steers the borrower in the direction of a particular mortgage which the borrower could enter into.

I recommend you take out (or do not take out) a mortgage.

No. This is not advice which steers the borrower in the direction of a particular mortgage which the borrower could enter into.

I would always recommend buying a house and taking out a mortgage as opposed to renting a property.

No. This is an example of generic advice which does not steer the borrower in the direction of a particular mortgage that he could enter into.

I recommend you do not borrow more than you can comfortably afford.

No. This is an example of generic advice.

If you are looking for flexibility with your mortgage I would recommend you explore the possibilities of either a flexible mortgage or an off-set mortgage. There are a growing number of lenders offering both.

No. This is an example of generic advice.
PERG 4.6.13GRP
In the FCA's view, advice requires an element of opinion on the part of the adviser which steers or is intended to steer a borrower or potential borrower in the direction of one or more particular mortgages. In effect, it is a recommendation as to a course of action. Information on the other hand, involves objective statements of facts and figures.
PERG 4.6.15GRP
Information relating to entering into regulated mortgage contracts may often involve one or more of the following:(1) an explanation of the terms and conditions of a regulated mortgage contract, whether given orally or in writing or by providing leaflets and brochures;(2) a comparison of the features and benefits of one regulated mortgage contract with another;(3) the production of scripted questions for the borrower to use in order to exclude options that would fail to meet his
PERG 4.6.16GRP
In the FCA's opinion, however, such information is likely take on the nature of advice if the circumstances in which it is provided give it the force of a recommendation as described in PERG 4.6.10 G. Examples of situations where information provided by a person ('P') are likely to take the form of advice are given below.(1) P provides information on a selected, rather than balanced and neutral, basis that would tend to influence the decision of the borrower. This may arise where
PERG 4.6.21GRP
Scripted questioning involves using any form of sequenced questions in order to extract information from a person with a view to facilitating the selection by that person of a mortgage or other product that meets his needs. A decision tree is an example of scripted questioning. The process of going through the questions will usually narrow down the range of options that are available. Scripted questions must be prepared in advance of their actual use.
PERG 4.6.34GRP

2Further examples of what is and is not regulated advice

This table belongs to PERG 4.6.33 G.

Example of what the firm3 says and does

3

Regulated or not?

(1) The firm says “We have a wide range of mortgages, including fixed and variable rates. Here are some leaflets which set out the main features.”

No. Leaflets that just explain the terms and conditions of a lender’s products are not advice (see PERG 4.6.15G (1)).

Even if the leaflet contains promotional material, merely handing over the leaflet does not mean that the firm is giving advice.

(2) The firm says “We have a wide range of mortgages, our best rates are two-year fixed rates, you might want to look at those.”

Yes. The firm has identified specific products that it offers and is steering the customer to those products. Identifying which products have the lowest rates is not advice on its own, only facts. However, “best” involves a value judgment, particularly when a comparison is made with other products that have different periods for which interest is fixed or that have variable interest rates.

(3) The firm says “In order to provide you with an illustration, I need to know how much you want to borrow, the term and the property value. Which product or products would you like an illustration for?”

No. The firm is collecting factual information to provide the customer with an illustration of costs.

(4) The firm says “Based on what you’ve told me I think you would be best to look at two-year fixed rates. Here is some information about our products.”

Yes. The firm has made a judgment on what type of product is best for the customer and has identified specific products of that type that it offers.

(5) The firm says “Our fixed rates start at 4.99% for two years with a £900 fee. Our variable rates start at 4.50% with a £800 fee. Depending on how much you want to borrow and your circumstances, this may affect the rate available to you.”

No. The firm is comparing two products without recommending either, nor is the firm steering the customer to one over the other.

(6) A lender with just one mortgage product advises a customer to take out that mortgage. The lender makes it clear that it does not give advice about products other than its own.

Yes. The lender may argue that this is not regulated advice because it is not recommending one product over another as it only has one product itself and does not give advice about the products of other lenders. However, in the FCA's view this is still regulated advice. For advice to be regulated it must be advice on the merits of entering into a particular regulated mortgage contract (or varying one). It is possible to give advice about the merits of a product without comparing that product with another.

Note: Unless otherwise specified, the firm might be the lender or an advisory or intermediary firm.
DISP App 1.3.2GRP
12In practice, it is likely to be appropriate for a complainant whose complaint has been upheld to convert to a repayment mortgage, whether or not there is financial loss to date. It will normally be possible for complainants to do so without incurring unreasonable cost. Conversion will of course mean that the complainant no longer has a policy.
DISP App 1.3.4GRP
21Firms should make it clear that they will bear the costs of conversion if the rearrangement is made with the existing lender and to the equivalent repayment mortgage. If a complainant is not willing to rearrange with the existing lender, then the costs to be paid by the firm should normally be limited to those which would have been payable had the rearrangement been made with the existing lender and to the equivalent repayment mortgage. If it is not possible to rearrange with
DISP App 1.3.5GRP
21If the "new" mortgage is, in fact, arranged at a lower interest rate than the existing loan, the benefit to the complainant should usually be disregarded, as it is always open to complainants to change their underlying mortgage arrangements at any time.
DISP App 1.3.6GRP
12If the "new" mortgage is arranged at a higher interest rate than the existing loan, the increased payment should not normally be taken into account in calculating any payment to be made to the complainant.
DISP App 1.3.7GRP
12If the complainant takes the opportunity to increase his loan on the occasion of the remortgage, the expenses which a firm pays by way of compensation should be paid by reference to the capital sum due under the "old" loan.
DISP App 1.3.10GRP
12In the event that a complainant is willing to pursue this option, a firm should first have assessed the complainant's loss using the approach set out in this appendix, and the minimum amount the complainant should receive under such a sale arrangement is the sum representing the position the complainant should have been in under this appendix together with the reimbursement of remortgaging costs. In order to ensure the process does not delay the provision of redress, the firm
DISP App 1.3.11GRP

12Example of assessment set out at 1.3.10

The following example illustrates the position:

Surrender value

£10,000

TEP value

£16,000

Loss calculated by standard approach

£5,000

Remortgaging costs

£300

Total

£15,300

Complainant receives £16,000 all ultimately funded from the TEP sale.

Surrender value

£10,000

TEP value

£13,000

Redress calculated by standard approach

£5,000

Remortgaging costs

£300

Total

£15,300

Complainant receives £15,300, £13,000 ultimately funded from the TEP sale and £2,300 ultimately funded from the firm.

IFPRU 4.2.2GRP
Where the FCA has published evidence showing that a well-developed and long-established residential property market is present in that territory with loss rates which do not exceed the limits in article 125(3) of the EU CRR (Exposures fully and completely secured by mortgages on residential property), a firm does not need to meet the condition in article 125(2)(b) of the EU CRR in order to consider an exposure, or any part of an exposure, as fully and completely secured for the
IFPRU 4.2.3RRP
For the purposes of articles 124(2) and 126(2) of the EU CRR, and in addition to the conditions in those regulations, a firm may only treat exposures as fully and completely secured by mortgages on commercial immovable property located in the UK1 in line with article 126 where annual average losses stemming from lending secured by mortgages on commercial property in the UK did not exceed 0.5% of risk-weighted exposure amounts over a representative period. A firm must calculate
IFPRU 4.2.7GRP
The FCA considers an Ijara mortgage to be an example of an exposure to a tenant under a property leasing transaction concerning residential property under which the firm is the lessor and the tenant has an option to purchase. Accordingly, the FCA expects exposures to Ijara mortgages to be subject to all of the requirements that apply to exposures secured by mortgages on residential property, including in respect of periodic property revaluation (see articles 124 and 125 of the
IFPRU 4.2.8GRP
The FCA expects a firm with exposure to a lifetime mortgage to inform the FCA of the difference in the own funds requirements on those exposures under the EU CRR and the credit risk capital requirement that would have applied under BIPRU 3.4.56A R.The FCA will use this information in its consideration of relevant risks in its supervisory assessment of the firm (see articles 124, 125 and 208 of the EU CRR).
IFPRU 4.2.9GRP
When determining the portion of a past due item that is secured, the FCA expects the secured portion of an exposure covered by a mortgage indemnity product that is eligible for credit risk mitigation purposes under Part Three, Title II, Chapter 4 of the EU CRR (Credit risk mitigation) to qualify as an eligible guarantee (see article 129(2) of the EU CRR).
MCOB 7.6.6GRP
Examples of where MCOB 7.6.5 R will apply are the release of tranches of money to the customer in relation to a self-build mortgage or other instalment mortgage.
MCOB 7.6.9RRP
An8illustration provided in accordance with MCOB 7.6.7R(1)8 must:(1) be based on the amount of the further advance only;(2) use the term 'additional borrowing' in place of the term 'mortgage' where appropriate throughout the titles and text of the illustration;(3) include an additional section headed: 'Total borrowing' and numbered '7a' after Section 7, including the following text:(a) "This section gives you information about how your mortgage will be affected by taking out this
MCOB 7.6.11GRP
For the purposes of MCOB 7.6.9 R(3) and (4):(1) a customer's existing mortgage includes a mortgage entered into prior to 31 October 2004 as well as a regulated mortgage contract;(2) the frequency of payments is that in MCOB 5.6.40 R; and (3) a firm may generally rely on information provided by the customer unless, taking a common-sense view of this information, it has reason to doubt it.
MCOB 7.6.13RRP
Where not all of the mortgage interest rates described in accordance with MCOB 5.6.25 R(2)(a) apply for the term of the loan part to which they apply, the firm must disclose the amount that will be paid in each instalment when complying with MCOB 7.6.9 R(3)(b), including the following information:(1) when a change in payment will occur;(2) the reason for the change in payment; and(3) confirmation that the payment illustrated assumes rates will not change.
MCOB 7.6.15GRP
MCOB 7.6.14 R allows the firm to make changes to wording and to add, remove or alter information that would otherwise be misleading for the customer. For example, the firm may add text to let the customer know if conditions applying to the original mortgage do not apply to the additional borrowing, such as 'The early repayment charges applying to your existing loan do not apply to this additional borrowing.'
MCOB 7.6.16RRP
(1) (In the case of a business illustration), MCOB 5.6.16 R is replaced with the following: "Section 1: 'About this illustration' Under the section heading 'About this illustration', the following text must be included:'We are required by the Financial Conduct Authority (FCA) - the independent watchdog that regulates financial services - to provide you with this illustration.' "(2) (In the case of any other illustration8 ), MCOB 5.6.16 R is replaced with the following; "Section
MCOB 7.6.17RRP
(1) Where the further advance for which the customer has applied is in the form of an annual insurance premium secured by a first legal charge, a firm:(a) may, instead of providing an illustration or ESIS8 in accordance with MCOB 7.6.7 R, provide confirmation of the matters required by MCOB 7.6.5 R; and(b) where (a) applies use the following text:"Your annual insurance premium has been/will be added to your mortgage account [unless you pay it by dd/mm/yy]. If you choose to pay
MCOB 9.4.24RRP
Under the section heading "Description of this mortgage" the illustration must:(1) state the name of the mortgage lender providing the lifetime mortgage7 to which the illustration relates (a trading name used by the mortgage lender may also be stated in accordance with MCOB 9.4.2 R(6)), and the name, if any, used to market the lifetime mortgage;777(2) include a statement describing the lifetime mortgage;77(3) if the lifetime mortgage7 is linked to an investment, and payments required
MCOB 9.4.50RRP
An explanation of the table required in accordance with MCOB 9.4.51 R must be shown in a box immediately under the heading using the following text:"This shows how the amount(s) paid to you and the interest and any fees that we charge mount up over [insert number of years estimated in accordance with MCOB 9.4.10 R or MCOB 9.4.12 R] years. It has been calculated using the current interest rate(s) of [insert interest rate(s)]. Interest is added to the amount you owe [insert frequency
MCOB 9.4.64RRP
Section 10: "How the value of your home could change" must contain the following text in addition to the text in accordance with MCOB 9.4.62 R or MCOB 9.4.63 R:"Based on the estimated value of your home now of [insert amount from MCOB 9.4.6 R(3)] this example shows what the value of your home would be after [insert term from MCOB 9.4.10 R or MCOB 9.4.12 R] years if the value went up by 1% each year or went down by 1% each year. Remember also that the mortgage may run for more
MCOB 9.4.69RRP
(1) If a higher lending charge is payable by the customer, the following text must be used to describe such a charge for the purposes of MCOB 9.4.68 R:"A higher lending charge is payable because you are borrowing [insert the ratio of the mortgage amount (from MCOB 9.4.13 R) to the property's price or value (from MCOB 9.4.6 R(3))] of the property's [estimated] [price/value]."(2) If the customer has asked for any fees to be added to the loan, this must be stated alongside each fee.2(3)
MCOB 9.4.74GRP
Firms are reminded that MCOB 5.4.23 R requires a firm to provide a customer with an accurate quotation for any tied products. Where the level of cover the firm requires the customer to take up is known at the outset, then the quotation should reflect that level of cover.
MCOB 9.4.76RRP
The following information must be included under the sub-heading "Insurance you must take out as a condition of this mortgage but that you do not have to take out through [insert name of mortgage lender or where relevant the name of the mortgage intermediary, or both]":(1) if the lifetime mortgage7 requires the customer to take out an insurance policy (other than that which is a tied product which the customer is obliged to purchase through the mortgage lender or where relevant
MCOB 9.4.77GRP
Under the sub-heading "Insurance you must take out as a condition of this mortgage but that you do not have to take out through [insert name of mortgage lender or where relevant the name of the mortgage intermediary, or both]", the illustration should not include any insurance policy that may be taken out by a mortgage lender itself to protect its own interests rather than the customer's interests, for example, because of the ratio of the loan amount to the property value.1
MCOB 9.4.124GRP
MCOB 2.3.7 R requires any material inducements provided by a mortgage lender, whether directly or indirectly, to a mortgage intermediary or third party (unless the payment only reflects the cost of outsourcing work relating to the processing of mortgage applications by a firm unconnected to the mortgage intermediary) to be quantified in cash terms, which will enable the cash values to be included in the illustration in accordance with MCOB 9.4.123 R.1
MCOB 9.4.126RRP
This section must:(1) follow Section 15 "Overall cost of this mortgage", unless the illustration is issued by a mortgage intermediary, in which case it must follow Section 16 "Using a mortgage intermediary"; and(2) include the name, address and contact point of the firm providing the illustration.
CONC 4.3.3GRP
For the agreements referred to in CONC 4.3.2 R, a firm should consider whether it is necessary or appropriate to provide explanations of the matters in CONC 4.5.3R (2), in particular, a firm should consider highlighting key risks to the borrower including the consequences of missing payments or under-paying, including, where applicable, the risk of repossession of the borrower's property.[Note: section 55A(6) of CCA and paragraph 3.1 of ILG][Note: Until the end of 30 September
CONC 4.3.4RRP
(1) Before a P2P agreement is made, the firm must:(a) provide the prospective borrower with an adequate explanation of the matters referred to in (2) in order to place the borrower in a position to assess whether the agreement is adapted to the borrower's needs and financial situation;(b) where the P2P agreement is not a non-commercial agreement, advise the prospective borrower:(i) to consider the information which is required to be disclosed under section 55(1) of the CCA; and(ii)
CONC 4.3.6RRP
Before a P2P agreement which is secured on the borrower's home is made, a firm must in a prominent way give the following warning:“YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT”
CONC 4.3.8RRP
(1) 1This rule applies if:(a) a firm with permission to carry on the activity of operating an electronic system in relation to lending is to facilitate the entry into a P2P agreement; (b) the prospective borrower is an individual; and(c) an individual other than the borrower (in this rule referred to as “the guarantor”) is to provide a guarantee or an indemnity (or both) in relation to the P2P agreement.(2) The firm must, before the P2P agreement is made, provide the guarantor
MIPRU 4.3.3RRP
For a firm which carries on insurance mediation activity or home finance mediation activity1, annual income is the amount of all brokerage, fees, commissions and other related income (for example, administration charges, overriders, profit shares) due to the firm in respect of or in relation to those activities. But it does not include income generated from carrying on any home finance mediation activity for:31(1) second charge regulated mortgage contracts; or3(2) legacy CCA mortgage
MIPRU 4.3.7RRP
For the purposes of the calculation of the capital resources of a firm carrying on home finance administration1only with all the assets it administers off balance sheet, annual income is the sum of:11(1) revenue (that is, commissions, fees, net interest income, dividends, royalties and rent); and(2) gains;(3) arising in the course of the ordinary activities of the firm, less profit:(a) on the sale or termination of an operation;(b) arising from a fundamental reorganisation or
MIPRU 4.3.7ARRP
2In the calculation of the capital resources of a firm that carries on any home finance administration activity, the annual income does not include annual income from:3(1) second charge regulated mortgage contracts; or3(2) legacy CCA mortgage contracts.3
MCOB 1.6.2GRP
Principle 2 requires a firm to conduct its business with due skill, care and diligence. The purpose of MCOB 1.6.3 R is to reinforce this. The FCA would expect firms to take appropriate steps to determine whether any mortgage it proposes to enter into is subject to FCA regulation and, if so, whether it is a regulated mortgage contract or a regulated credit agreement4.
MCOB 1.6.3RRP
Before a firm enters into a mortgage, it must take all reasonable steps to establish whether that mortgage will be a regulated mortgage contract and therefore subject to MCOB.
MCOB 1.6.4RRP
If, notwithstanding the steps taken by a firm to comply with MCOB 1.6.3 R, it transpires that a mortgage which the firm has treated as unregulated or as a regulated credit agreement4 is in fact a regulated mortgage contract, the firm must as soon as practicable after the correct status of the mortgage has been established:(1) contact the customer and provide him with the following information in a durable medium:(a) a statement that the mortgage contract is a regulated mortgage
MCOB 1.6.5GRP
(1) MCOB 1.6.4 R(2) means, for example, that if a firm discovered immediately after completion that a loan was a regulated mortgage contract, the firm would be required to comply with MCOB 7.4 (Disclosure at the start of the contract).(2) Although MCOB 1.6.4 R recognises that firms may become aware that a mortgage is a regulated mortgage contract at a late stage, the FCA expects this to be an extremely rare occurrence. It could arise, for example, if a firm has acted on the understanding,
MCOB 9.8.1RRP
The statement required by MCOB 7.5.1 R must contain the following information:(1) except in the case of mortgage credit cards, information on the type oflifetime mortgage,3 (for example, fixed rate or variable rate) including a clear statement of how the firm expects the capital, or capital and interest (whichever is applicable) to be repaid (for example, from the proceeds of the sale of the property);3(2) details of the following transactions and information on the lifetime
MCOB 9.8.3RRP
A firm must give the customer reasonable notice, in advance, of any of the following:(1) any changes to the payments that the customer is required to make (where payments are required, and whether or not they are collected by deduction from the income provided by a linked investment product such as annuity) resulting from interest rate changes;(2) the exercising of the firm's right (if allowed by the terms of the lifetime mortgage3 ) to enter the property to carry out essential
MCOB 9.8.4GRP
Examples of where MCOB 7.6.5 R will apply are the release of tranches of money to the customer in relation to a self-build mortgage or other instalment mortgage, but not a drawdown mortgage.
MCOB 9.8.10RRP
If a customer requests, or agrees to, a change to a lifetime mortgage.3(other than a change as described in MCOB 7.6.7 R to MCOB 7.6.27 R (as modified by MCOB 9)) that changes the amount paid to the customer under a drawdown mortgage, or the amount that the customer will owe under a roll-up of interest mortgage, or both, a firm must provide the customer with the following information, in a single communication, before the change takes effect:3(1) the amount outstanding on the
DISP App 1.4.1GRP
This section of this appendix is primarily concerned with circumstances where the term of the mortgage and associated endowment policy extend beyond the individual complainant's normal retirement age in circumstances where the firm regards a complaint as justified because the arrangement is not affordable in retirement; and this could have, and should have, been foreseen at the time of the advice.1212
DISP App 1.4.11GRP
12If a complaint is regarded as justified by the firm on the basis that the endowment policy maturity date extends beyond the mortgage term expiry date and the firm is responsible for this situation, the policy should be reconstructed so that it matures at the expiry of the mortgage term.
DISP App 1.4.14GRP

12Example 8

Example 8

Term extends beyond retirement age and policy reconstruction

Background

45 year old male non-smoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th policy anniversary.

It has always been the intention of the complainant to retire at State retirement age 65.

Term from date of sale to retirement is 20 years and the maturity date of the mortgage is 5 years after retirement.

Established facts

Established premium paid by investor on policy of original term (25 years):

£81.20

Premium that would have been payable on policy with term from sale to retirement (20 years):

£111.20

Actual policy value at time complaint assessed:

£12,500

Value of an equivalent 20-year policy at time complaint assessed:

£21,300

Difference in policy values at time complaint assessed:

£8,800

Difference in outgoings (20 year policy - 25 year policy):

£4,320

Basis of compensation

The policy is reconstructed as if it had been set up originally on a term to mature at retirement age, in this example, a term of 20 years. The difference in the current value of the policy actually sold to the complainant and the current value of the reconstructed policy, as if the premium on the reconstructed policy had been paid from outset, is calculated. The complainant has gained from lower outgoings (lower premiums) of the actual endowment policy to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain.

Redress generally if it is not unreasonable to take account of the whole of the gain from lower outgoings

Loss from current value of reconstructed policy less current value of actual policy:

(£8,800)

Gain from total lower outgoings under actual policy:

£4,320

Net loss:

(£4,480)

Therefore total redress is:

£4,480

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from current value of reconstructed policy less current value of actual policy:

(£8,800)

Gain from total lower outgoings under actual policy:

Ignored

Therefore total redress is:

£8,800

Additional Information

If the policy is capable of reconstruction, the complainant must now fund the higher premiums himself for the remainder of the term of the shortened policy until maturity. In this example the higher premium could be £111.20. However the firm should provide the complainant with a reprojection letter based on the reconstructed policy such that the actual monthly payment required to achieve the target sum could be even higher, say £130. The reprojection letter should set out the range of options facing the complainant to deal with the projected shortfall, if any.

DISP App 1.4.15GRP

12Example 9

Example 9

Term extends beyond retirement age: example of failure to explain investment risks

Background

45 year old male non-smoker, having taken out a £50,000 loan in 1998 for a term of 25 years. Unsuitable sale identified on the grounds of affordability and complaint raised on 12th anniversary.

It has always been the intention of the complainant to retire at state retirement age 65.

Term from date of sale to retirement is 20 years and the maturity date of the mortgage is five years after retirement.

In addition, an endowment does not meet the complainant's attitude to investment risk and a repayment mortgage would have been taken out if properly advised.

Established facts

Surrender value (on the 25 year policy) at time complaint assessed:

£12,500

Capital repaid under repayment mortgage of term to retirement date (20 years):

£21,000

Surrender value less capital repaid:

(£8.500)

Difference in outgoings (repayment - endowment):

£5,400

Cost of converting from endowment mortgage to repayment mortgage:

£200

Basis of compensation:

The surrender value of the (25 year term) endowment policy is compared to the capital that would have been repaid to date under a repayment mortgage arranged to repay the loan at retirement age, in this example, a repayment mortgage for a term of 20 years. The complainant has gained from lower outgoings of the endowment mortgage to date. In calculating the redress, the gain may be offset against the loss unless the complainant's particular circumstances are such that it would be unreasonable to take account of the gain. The conversion costs are also taken into account in calculating the redress.

Redress generally

Loss from surrender value less capital repaid:

(£8,500)

Gain from total lower outgoings under endowment mortgage:

£5,400

Cost of converting to a repayment mortgage:

(£200)

Net loss:

(£3,300)

Therefore total redress is:

£3,300

Redress if it is unreasonable to take account of gain from lower outgoings

Loss from surrender value less capital repaid:

(£8,500)

Gain from total lower outgoings under endowment mortgage:

Ignored

Cost of converting to a repayment mortgage:

(£8,700)

Therefore total redress is:

£8,700
MCOB 9.7.2RRP
A firm that enters into a lifetime mortgage1 with a customer where interest payments are required (whether or not they will be collected by deduction from the income from an annuity or other linked investment product) must provide the customer with the following information before the customer makes the first payment under the contract:1(1) the amount of the first payment required;(2) the amount of the subsequent payments;(3) the method by which the payments will be collected
MCOB 9.7.4RRP
A firm that enters into a lifetime mortgage1 which is a drawdown mortgage, with fixed payments to the customer, must provide the customer with the following information before the first payment is drawn down by the customer:1(1) the amount of the first payment to be made;(2) the amount of subsequent payments, if different; (3) the method by which the payment will be made (for example, by transfer to the customer's bank account) and the date of issue of the first and subsequent
MCOB 9.7.6RRP
Where the lifetime mortgage1 is a drawdown mortgage and the customer can choose the amount and frequency of the payments they receive, or the amount and frequency of payments can vary for other reasons (for example in line with interest rates) the firm must provide the customer with the following information before the first payment is drawn down by the customer:1(1) (a) where the customer can choose the amount and frequency of the payments they receive, details of any limitations
MCOB 9.7.8RRP
Where thelifetime mortgage1 provides for a lump sum payment to be made to the customer, and all or part of the interest will be rolled up during the life of the mortgage, the firm must provide the customer with the following information before the customer makes the first payment under the contract, or if no payments are required from the customer, within seven days of completion of the mortgage:1(1) if no payments are required from the customer, confirmation that no payments
MCOB 5A.6.2RRP
(1) Where a firm issues an ESIS in relation to an MCD lifetime mortgage, the firm must simultaneously issue the consumer with a document in a durable medium containing the statements and warnings set out in the following rules, as modified by (2) below, as if the mortgage was an MCD exempt lifetime mortgage: MCOB 9.4.33 R, MCOB 9.4.35 R, MCOB 9.4.62 R, and MCOB 9.4.63 R only.(2) The document issued under (1) must contain the prescribed section headings but need not contain section
MCOB 4.4A.3AGRP
3In making its disclosure under MCOB 4.4A.1R(1), a firm should indicate, for each relevant market, whether this is across first charge legal mortgages, second charge regulated mortgage contracts or both.
MCOB 4.4A.6GRP
The disclosure required by MCOB 4.4A.1R (1), MCOB 4.4A.2R and MCOB 4.4A.4R(1) about limitations in product range and direct deals should be expressed in simple, clear terms. A firm may wish to consider using a sentence appropriate to the circumstances, along the following lines:• “We are not limited in the range of mortgages we will consider for you.”• “We offer a comprehensive range of mortgages from across the market, but not deals that you can only obtain by going direct to
MCOB 4.4A.8BGRP
2Firms are not obliged to explore whether a further advance with the existing lender, a new first charge regulated mortgage contract with another lender, a second charge regulated mortgage contract or unsecured lending is more appropriate for the customer where that is not the service offered to the customer.
MCOB 5.4.16GRP
3MCOB 53 places no restrictions on the provision of information that is not specific to the amount the customer wants to borrow, for example, marketing literature including generic mortgage repayment tables or graphs illustrating the benefits of making a regular overpayment on a flexible mortgage. Such literature may, however, constitute a financial promotion2 and be subject to the provisions of MCOB 3A4(Financial promotions and communications with customers).424
CONC 4.1.3RRP
(1) When a firm provides a quotation to a customer in connection with a prospective credit agreement which would or might be secured on the customer's home, the firm must include (or cause to be included) in the quotation a statement that such security would or might be required. [Note: regulation 3a of SI 1999/2725](2) When a firm provides a quotation to a customer (C) in connection with a prospective credit agreement which would or might be secured on C’s home under which, while
CONC 4.1.4RRP
(1) When a firm provides a quotation to a customer in connection with a prospective credit agreement which would or might be secured on the customer's home, the firm must include (or cause to be included) in the quotation a statement that such security would or might be required.[Note: regulation 6 of SI 1999/2725](2) When a firm provides a quotation to a customer (C) in connection with a prospective credit agreement which would or might be secured on C’s home under which, while
CONC 4.1.5RRP
(1) Paragraphs (2) to (5) apply to CONC 4.1.3 R and CONC 4.1.4 R (rules on content of quotations).(2) “Quotation” means any document by which a person gives a customer information about the terms on which the person or a lender or owner is prepared to do business, but it does not include:(a) a communication which is also a financial promotion;(b) any document given to a customer under section 58 of the CCA (opportunity for withdrawal from prospective land mortgage);(c) any document
CONC 11.1.2RRP
(1) For a credit agreement there is no right to cancel under CONC 11.1.1 R, unless (2) or (3) applies, in respect of:(a) a regulated consumer credit agreement (within the meaning of that section) to which section 66A (right to withdraw) of the CCA applies;(b) a credit agreement under which a lender provides credit to a consumer and where the consumer's obligation to repay is secured by a legal mortgage on land;(c) a credit agreement cancelled under regulation 15(1) of the Consumer
CONC 11.1.3GRP
Section 66A of the CCA (right to withdraw) does not apply to an agreement for credit exceeding £60,260 (unless the agreement is a residential renovation agreement)2, an agreement secured on land, a restricted-use credit agreement to finance the purchase of land or an agreement for a bridging loan in connection with the purchase of land. Section 67 of the CCA (cancellable agreements) applies to regulated credit agreements (apart from agreements secured on land, restricted-use credit